Every weekend I spend some time reading and doing some research in order to stay current with the world of personal finance.  As you may expect, everything is changing, which certainly makes doing any long-term planning more difficult than in the past.  After all, there is no certainty as to what tax laws or other laws will be a few years down the road.  That being said, when it comes to planning, you have to base your decisions on the facts as they are today.  In addition, you always want to be flexible and never afraid to make changes where changes are needed.  I bring this up because I recently had a conversation with a client who is very resistant to change.  I’m a believer that there is only one constant in the world and that is change.  I don’t believe you should necessarily make changes without reason, but when the situation changes you need to be proactive.

The situation with the client is that he has been retired for about four years and during that time income has not been a problem.  In addition, his portfolio is such that there should be no problem with him maintaining his lifestyle throughout retirement.  The projections were based upon his living expenses as well as his wife’s.  However, his daughter’s recent divorce has changed things dramatically.  His daughter was involved in a nasty divorce that basically left her penniless.  My client has therefore taken it upon himself to financially support his daughter.  Although this is very admirable, the problem is he can’t afford it.  As I told him, to continue supporting his daughter would throw his retirement projections out of whack and the way I calculate it, in a few years he will have financial difficulty.  That is why I recommended certain changes that he is very reluctant to do.  It is almost like he is in denial and refuses to accept the new reality.

I recognize the client is between a rock and a hard place.  How can you not help your daughter?  It’s obvious that he has to.  However, just because you are doing the right thing doesn’t mean that it comes without a cost.  In the situation at hand, the cost is that unless he makes some changes in his lifestyle, he will find that in a few years his portfolio will no longer cover his living expenses.  At that point in time, he will have very few options and one thing we all know is that even though we live in the greatest country on earth, there’s nothing worse than to be old and poor in America.

I cannot stress enough that once you retire, that doesn’t mean that you can put things on automatic pilot and forget about it.  I believe when you retire, at least twice a year you need to do a cash flow statement so you can determine what your cost of living is.  By constantly monitoring your cost of living, it allows you to make minor adjustments, whether it is to your lifestyle or to your portfolio to reflect the changes.  The problem is if you wait too long, minor adjustments may not resolve the problem and you may find that you have very few options and those options are not very favorable.  That is why I cannot stress enough how important it is that throughout your retirement you constantly monitor your living expenses.

Monitoring living expenses is not that difficult.  All you need to do is a cash flow statement.  A cash flow statement is nothing more than monitoring what comes in and what goes out.  You don’t need any fancy software; you can do it the old-fashion way with paper and pencil.  The bottom line, you must know what it costs you to live a month.  Particularly, for those on a fixed income, monitoring living expenses is essential.

I recognize that change is difficult; however, what we all need to do is consider the alternative of not making changes.  If you don’t constantly monitor your expenses and make changes where necessary, you may find that down the road your golden years aren’t so golden.

Good luck!

Rick is a fee-only financial advisor.  His website is www.bloomassetmanagement.com.  If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.